Understanding Realized Capitalization, the Bitcoin Indicator You Shouldn't Ignore

Sabrina Wang
Sep 20, 2023

In the ever-evolving world of cryptocurrency, understanding market indicators is crucial for investors. One such indicator, the Realized Price, has historically signaled the best times to buy Bitcoin. However, a more nuanced measure, the Realized Cap, offers even deeper insights for those looking to optimize their investment decisions.

What is the Realized Cap?

At its core, the Realized Cap for Bitcoin provides a snapshot of the cryptocurrency's actual value, taking into account the price at which each Bitcoin was last transacted. Unlike traditional market capitalization, which focuses solely on the current market price, the Realized Cap delves deeper, reflecting the prices at which coins were last moved on the blockchain. This offers a more genuine representation of the value held by Bitcoin holders.

Why Does It Matter?

  • Lost and Dormant Coins: Realized Cap minimizes the influence of coins that have been lost or have remained dormant for extended periods. When a coin, last moved at a significantly lower price, is spent, it's revalued at the current price, thus influencing the Realized Cap.
  • Value Stored in the Asset: Given that the Realized Cap values each coin at its last moved price, it serves as a proxy for the value 'stored' or 'saved' in the asset. This metric provides an estimate of the aggregate cost basis for the network, laying the foundation for other essential metrics.

Breaking Down the Calculation

To truly grasp the significance of the Realized Cap, it's essential to understand its calculation:

  1. Identify the Last Transaction Price: For each Bitcoin, pinpoint the price at which it was last transacted on the blockchain. This involves determining the most recent purchase or sale price.
  2. Factor in the Total Supply: Multiply the last transaction price of each Bitcoin by the total number of Bitcoins that were last moved at that specific price.
  3. Aggregate the Values: Sum up the values derived from the above step for all Bitcoins that have recently moved on the blockchain.

The Realized Cap matters because it offers a more accurate gauge of Bitcoin's intrinsic value by accounting for historical transactions. By considering the last transaction prices and filtering out the noise of lost or dormant coins, it provides investors with a clearer picture of the actual economic weight of Bitcoin in the market, ensuring more informed investment decisions. A few of these could look like:

  • Timing Purchases: By observing periods when the market cap is below the Realized Cap, investors can identify potential cyclical bottoms, signaling opportune moments to buy Bitcoin at a perceived undervaluation relative to its historical transaction value.
  • Assessing Market Sentiment: A sharp uptrend in the Realized Cap during bull markets can indicate that coins purchased at lower prices are being spent to realize profits. Recognizing this trend can help investors anticipate potential market corrections or profit-taking phases.
  • Portfolio Diversification: Investors can use the Realized Cap to gauge the true economic weight of Bitcoin in comparison to other cryptocurrencies. This can inform decisions on portfolio allocation, ensuring a balanced mix of assets based on their actual transactional history and not just current market prices

Realized Cap and the Elementus Edge

The power of Elementus proprietary attribution data is a more granular view of Bitcoin profitability in certain sectors, or even individual entities. Let’s take OTC desks, for example. In general, they do better than the broader market. 

However, not all OTC desks are created equal. Just because the whole OTC desk sector does better than the market, doesn’t mean they’re all making money. Can you guess which graph is which OTC desk? One of them is Galaxy, another is Cumberland and the other is FalconX. Answers are at the end of this post!

Graph A: Making money

Graph B: Neutral

Graph C: Losing money

Without the Elementus data edge, you’d only be able to get the broader realized price. That’s not very useful if you’re a trader. Being able to add in the granularity around who’s making money and losing money at a specific price point is a huge advantage.

**Chart answers: A is Cumberland, B is FalconX and C is Galaxy.